Market forces and strong commodity prices continue to create record demand and sales activity for farmland, but there are several unknowns that could impact the coming year, according to Farmers National Company, one of the nation's leading agricultural services company.
"Demand continues to be very strong with increasing prices even at current levels," says Lee Vermeer, vice president of real estate operations at Farmers National Company. "Sales volume at Farmers National Company is up 40% compared to 2011, setting a record pace. We are projecting that the remainder of 2012 will see continued interest from landowners regarding potential land sales."
Farmers National Company reports it sold $600 million of farmland in the past 12 months, with $350 million of that in past six months.
The positive news for land owners is that demand for grain from world markets remains strong and there is still a limited supply of land, boosting land prices, Vermeer says.
In addition, returns have been strong over last year even though input costs have increased.
Uncertainty in the land market comes from unpredictability in Europe, potential for inflation and the looming possibility of tax law changes that would increase capital gains taxes. Also, a good growing season could lead to record production levels and lower commodity prices, which would reduce land profitability.
These and other changes could slow the land market slightly, according to Vermeer.
"I believe that sales activity will remain strong until some of the market uncertainties become known," Vermeer says. "People still see land as a safe, tangible investment and are willing to keep their money there over the long-term."